The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi

Tyler Durden's picture




 

Two topics we’ve deemed critically important to a thorough understanding of both global finance and the shifting geopolitical landscape are the death of the petrodollar and the idea of yuan hegemony. 

Last November, in “How The Petrodollar Quietly Died And No One Noticed,” we said the following about the slow motion demise of the system that has served to perpetuate decades of dollar dominance:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

 


 

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements.

Falling crude prices served to accelerate the petrodollar’s demise and in 2014, OPEC nations drained liquidity from financial markets for the first time in nearly two decades:

By Goldman’s estimates, a new oil price “equilibrium” (i.e. a sustained downturn) could result in a net petrodollar drain of $24 billion per month on the way to nearly $900 billion in total by 2018. The implications, BofAML notes, are far reaching: "...the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed's exit strategy.”

Shifting to the idea of yuan hegemony, China is aggressively pushing its Silk Road Fund and Asian Infrastructure Investment Bank.

The $40 billion Silk Road Fund is backed by China’s FX reserves, the Export-Import Bank of China, and China Development Bank and seeks to increase ROIC for Chinese SOEs by investing in infrastructure projects across the developing world, while the $50 billion AIIB is funded by 57 founding member countries (the US and Japan have not joined) and will serve to upend traditionally dominant multilateral institutions which have failed to respond to the rising influence and economic clout of their EM membership. China will push for the yuan to play a prominent role in the settlement of AIIB transactions and may look to establish special reserves in both the AIIB and Silk Road fund to issue yuan-denominated loans.

Back in early November, SWIFT data showed that 15 new countries had joined a list of nations settling more than 10% of their trade deals with China in yuan. "This is a good sign for [yuan] adoption rates and internationalisation. In particular, Canada's [yuan] usage for payments, which has increased greatly over this period, is very interesting since we have not seen strong adoption of the [yuan] from North America to date,” Astrid Thorsen, Swift's head of business intelligence said.

Earlier that month, China and Russia indicated that going forward, more trade between the two countries would be settled in yuan. From Reuters, last November:

Russia and China intend to increase the amount of trade settled in the yuan, President Vladimir Putin said in remarks that would be welcomed by Chinese authorities who want the currency to be used more widely around the world.

 

Spurred on by their often testy relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade.

 

Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, China wants to curb investment risks in dollar.

 

The quest to limit the dollar’s dominance became more urgent for Moscow this year when U.S. and European governments imposed sanctions on Russia over its support for separatist rebels in Ukraine.

"As part of our cooperation with this country (China), we intend to use national currencies in mutual transactions.The initial deals for rouble and yuan are taking place. I want to note that we are ready to expand these opportunities in (our) energy resources trade," Putin said at the time, suggesting that going forward, Russia may look to settle sales of oil in yuan. 

Sure enough, Gazprom has confirmed that since the beginning of the year, all oil sales to China have been settled in renminbi. From FT:

Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi, in the most clear sign yet that western sanctions have driven an increase in the use of the Chinese currency by Russian companies.

 

Russian executives have talked up the possibility of a shift from the US dollar to renminbi as the Kremlin launched a “pivot to Asia” foreign policy partly in response to the western sanctions against Moscow over its intervention in Ukraine, but until now there has been little clarity over how much trade is being settled in the Chinese currency.

 

Gazprom Neft, the oil arm of state gas giant Gazprom, said on Friday that since the start of 2015 it had been selling in renminbi all of its oil for export down the East Siberia Pacific Ocean pipeline to China.

 

Russian companies’ crude exports were largely settled in dollars until the summer of last year, when the US and Europe imposed sanctions on the Russian energy sector over the Ukraine crisis...

 

Gazprom Neft responded more rapidly than most, with Alexander Dyukov, chief executive, announcing in April last year that the company had secured agreement from 95 per cent of its customers to settle transactions in euros rather than dollars, should the need to do so arise.

 

Mr Dyukov later said the company had started selling oil for export in roubles and renminbi, but he did not specify whether the sales were significant in scale.

 

According to Gazprom Neft’s first-quarter results issued last month, the East Siberian Pacific Ocean pipeline accounted for 37.2 per cent of the company’s crude oil exports of 1.6m tonnes in the three months to March 31.

With that, the "PetroYuan" has officially been born and while FT notes that "other Russian energy groups have been more reluctant to drop the dollar for settlement of oil sales," the fact that Russian producers are now openly considering a shift at the same time that officials in the US and Europe are openly discussing stepped up economic sanctions suggests renminbi settlements may become more commonplace going forward.

To understand why and to what extent this is significant in the current environment, consider the following from WSJ:

Officials of the Organization of the Petroleum Exporting Countries, which declined to cut oil production last year, reasoned that maintaining high production levels would protect market share in crucial importing nations.;

 

But Chinese customs data released Friday show that China’s crude imports from some big OPEC nations have plummeted, while imports from Russia surged 36% in 2014. Meanwhile, imports from Saudi Arabia fell 8% and those from Venezuela dropped 11%.

 

 

To summarize: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman's projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Putting it all together, the PetroYuan represents the intersection of a dying petrodollar and an ascendant renminbi.

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Tue, 06/09/2015 - 11:28 | 6178692 CHX
CHX's picture

Vlad 293 - West 0

Tue, 06/09/2015 - 11:38 | 6178740 BoredRoom
BoredRoom's picture

War coming right after a republican wins the WH

Tue, 06/09/2015 - 11:43 | 6178758 AlaricBalth
AlaricBalth's picture

And what about Hillary the war monger?

If the puppet masters want war there will be war. No matter which false narrative party hack is in the WH

Tue, 06/09/2015 - 11:46 | 6178773 pods
pods's picture

Well without the need for all those dollars, they should come home. 

That is good right? More dollars chasing the same amount of goods.

:)

pods

Tue, 06/09/2015 - 11:48 | 6178787 CrazyCooter
CrazyCooter's picture

Well, at least Obamy took the world cup from them ... that 'll show 'em!

Regards,

Cooter

Tue, 06/09/2015 - 11:49 | 6178790 Looney
Looney's picture

...Russia’s third-largest oil producer, is now settling all of its crude sales to China in renminbi

By the way… in May, Russia has become the LARGEST oil producer, overtaking the Saudi Arabia and the US.

Looney

Tue, 06/09/2015 - 11:52 | 6178811 Mike in GA
Mike in GA's picture

O/T but where is the world is John Kerry?  No news, no pics, no videos - why nothing? 

 

Tue, 06/09/2015 - 12:01 | 6178853 Four chan
Four chan's picture

broken femur, ive had one too and am giving him a pass.

Tue, 06/09/2015 - 12:04 | 6178866 nope-1004
nope-1004's picture

The US sends a massive plane, complete with medical staff, for a broken leg?

http://www.whatdoesitmean.com/index1874.htm

 

Tue, 06/09/2015 - 12:09 | 6178891 Troll Magnet
Troll Magnet's picture

Ho Lee Fuk!

Tue, 06/09/2015 - 12:15 | 6178930 SoilMyselfRotten
SoilMyselfRotten's picture

What a waste. If he had that plane available Barbaro might still be alive today. 

Tue, 06/09/2015 - 12:26 | 6178987 Manthong
Manthong's picture

I would like to take this auspicious occasion to congratulate the State Department, the Administration and the US Congress for destroying whatever influence we had over the Sino-Russian relationship and hastening the demise of the US Dollar as the World’s Reserve currency.

I guess y’all think you need to start a war to cover this FUBAR up.

 

Tue, 06/09/2015 - 13:15 | 6179217 El Oregonian
El Oregonian's picture

Now if they have a Chinese oil tanker crash into a Columbian coffee export tanker, and all is lost and sinks to the bottom of the ocean, will that be called a Yuan Valdez disaster?

Tue, 06/09/2015 - 13:44 | 6179354 MonetaryApostate
MonetaryApostate's picture

Communism & Socialism = Corporatism, where you are the farm, and they are the farmer....  Don't get you get it yet folks?  (You cannot win, no matter what system a country has, the elite control them all!)

With that being said, Oil & Gas is so yesterday's news, and they don't even know it yet...

Infinite Electricity FTW!!

Tue, 06/09/2015 - 14:20 | 6179504 COSMOS
COSMOS's picture

This is why the USA is trying to push through these trans ocean trade agreements.  It wants to lock in as many suckers into the dollar before the floor falls out from underneath it.

Tue, 06/09/2015 - 15:20 | 6179796 LianaKaulitz
LianaKaulitz's picture

Too bad you have no clue what a dollar is

https://www.youtube.com/watch?v=kgoFcyttk-s

Tue, 06/09/2015 - 15:49 | 6179909 MonetaryApostate
MonetaryApostate's picture

All money is debt that the elite NEVER intend to repay....

(People are basically working for IOUs / Supporting a Ponzi-Scheme)

Tue, 06/09/2015 - 15:55 | 6179953 SWRichmond
SWRichmond's picture

Oil and gas deliveries to China from Russia, with sufficient pipeline capacity, do not need to go through Malacca Strait, thus avoiding the whole South China Sea dustup. 

Tue, 06/09/2015 - 16:12 | 6180018 Handful of Dust
Handful of Dust's picture

And despite the so-called rise of the yuan, Chinese are furiously struggling to get their RMB moollah out of China into Canadian or USA RE which is denominated in Canadian or USA dollars?

 

Imagine what would happen if the PRC changes its policy; namely, opens up more. There's a lot of potential there ... huge Middle Class getting wealthier all the time ... would all this money flow back into Mainland?

 

Just asking ... wondering....

Tue, 06/09/2015 - 19:44 | 6180786 espirit
espirit's picture

Has it occurred to the ZH Crew that MENA might become a nuclear wasteland?

Personally, I can't think of a better place.

(might suck for the southern latitudes 'tho)

Tue, 06/09/2015 - 22:35 | 6181217 Ying-Yang
Ying-Yang's picture

The grinding down of the American empire?

Yuan-Petro dollar becoming the Rising Sun? I'm not so sure this isn't part of the master plan. Just as it does not matter if a red or blue is voted into office. The Plan is incrementally advanced... over the long haul to global equalization, population reduction and more global control before venturing to Mars and beyond to pillage.

Please consider how intertwined China, Russia and the USA are in trade, joint ownerships, debt/credit and others. All parties are working together normally when viewed outside the Matrix. The Blue Pill view is "Panem et Circenses".

Bread and Circuses - http://www.original-republican.com/bread-and-circuses-and-the-roman-empire/

I am guessing the incrementalism towards the New World Order is boosted by turning the page on Petro Dollar King as planned.

But of course, what do I know?

Peace Brothers.

 

Wed, 06/10/2015 - 10:38 | 6182368 frankly scarlet
frankly scarlet's picture

you raise an interesting point as we have seen this before in the lead up to WW II, after which we have the old world order Pax America. In order for a NWO to take place the OWO must give way. Is this to be a non violent hand off or a cataclysmic WW III transition?...either way the working classes will pay the full price for all of it while being reduced to the lowest standards of present day Asian labor forces.

Wed, 06/10/2015 - 03:58 | 6181609 pretty bird
pretty bird's picture

There is no petro-yuan.  What a bunch of crap.  The dollar is king.  And deflation is word to your mother.

Wed, 06/10/2015 - 17:43 | 6184130 Ying-Yang
Ying-Yang's picture

Wow, don't read much do ya?

 

Tue, 06/09/2015 - 14:27 | 6179517 Since Lehman
Since Lehman's picture

Kerry is more like Ruffian than Barbaro (in that Foolish Pleasure came to be her eventual Waterloo)

Tue, 06/09/2015 - 14:31 | 6179577 bbq on whitehou...
bbq on whitehouse lawn's picture

Thats why rulers fade away and the people survive. The people are the land those who would be king are just passing storms. Violent and barbaric but they are not ment to last.
Just look at China, every kind of government, tyranny and despotic system. Yet all fall by the wayside and the people live on.

Wed, 06/10/2015 - 00:20 | 6181398 FIAT CON
FIAT CON's picture

Stephan Molyneux from you tube " whatever the.gov tries to do with violence (ie force) they create the opposite effect"

yes the great murican politicians spending all of their resources spying on and bombing people, meanwhile they are leading their counties people off a cliff.

 

 what is even worse is that the sheeple follow!

 

Tue, 06/09/2015 - 13:12 | 6179204 Freddie
Freddie's picture

+100

 

Tue, 06/09/2015 - 13:39 | 6179338 Captain Debtcrash
Captain Debtcrash's picture

I have my doubts about the preconceived notion that the US is going to lose out in the upcoming monetary shift.  Here’s why.  It seems like people in the alternative financial media take it as a given that the lose out in the coming decades but this seems more rooted in gut reaction than analysis.

 

Tue, 06/09/2015 - 15:11 | 6179766 Dathedr
Dathedr's picture

You must be one of that famous brand of simpletons called Murican idiots, hm?! Murican demise is written all over... pretty much everything. There is not a single domain, be it economics, finance, industry, etc. - you name it - that is not foretelling unavoidable Murican demise. 60 yrs ago your highest per capita income city was Detroit. Now Detroit is an African slam with 53% illiteracy rate. Even your cities' "evolution" is foretelling the inevitable, Murican simpleton. Take a look at your debt levels - they are higher than that of Greece! You have been bankrupt for quite some time; the near future is only going to make it formal, evident and documented!

 

Long gone are days of your parasitism. They are never going to come back. And you will never recover to be what you once were.

 

Hard times are coming to you, simpleton. It could not come a moment too soon.

Tue, 06/09/2015 - 15:44 | 6179903 The Other Cheek
The Other Cheek's picture

They do have a fucking big military though.

Wed, 06/10/2015 - 03:04 | 6181583 OldPhart
OldPhart's picture

How long do you think that will last when paychecks no longer have any value?

How long will that last when fuel is unobtainable?

How long will that last when most of the military is all over the world in areas that are no-longer friendlies?

When shit hits the fan, we're going to see the biggest retreat in mlilitary history, far surpassing our highly trained Iraqi troops; or, we're going to see the largest, retributive, slaughter of abandoned men.

Judging by the history of our war criminal government, I betting that the abandonment, and subsequent slaughter, will be the #1 option. It cuts costs all the way around.

Wed, 06/10/2015 - 02:34 | 6181569 trulz4lulz
trulz4lulz's picture

*Murikistanian

Wed, 06/10/2015 - 04:50 | 6181639 Ghordius
Ghordius's picture

Captain Debtcrash, we have to have a spat, one of those days, specifically on:

"Europe as a whole is a basket case, and there will be no real leadership coming from there until they realize the monetary union is a failure.  Depending on the time line the fallout from that failure will probably follow through into the next monetary system.  In addition, after the financial crisis, the US essentially recapitalized its banking system, even if immoral to do so.  Europe never recapitalized, and this is why they are so much more levered than the US banks, yet another issue that will have to be dealt with that will hamper the European powers."

first, from an Austrian School perspective that "real leadership" is actually a lot of government intervention

second, any comparison between American and eurozone banks, particularly when it comes to leverage, has to include the facts around direct business loans to private enterprises versus the more financial market oriented American Way of going public and issuing stocks and bonds. Something that is actually reversing in the US anyway, if you look at stocks buy-backs

third, the monetary union. define it's "failure"... from an Austrian School perspective. Because up to now, critics always use a neo-keynesian and a socialist perspective

note, in all this, that our monetary union is carefully poised to be neutral in the case of a monetary shift. neither for nor against

Tue, 06/09/2015 - 17:02 | 6180193 rickybobby1hundo
rickybobby1hundo's picture

P1? 

Tue, 06/09/2015 - 13:30 | 6179090 JuliaS
JuliaS's picture

Kerry is reported to be in a stable...

... condition.

Tue, 06/09/2015 - 14:39 | 6179622 Freddie
Freddie's picture

He could be in a coma and they would say that.  Still, Kerry in a coma - how could we tell?

Tue, 06/09/2015 - 19:47 | 6180794 espirit
espirit's picture

+100 @ JuliaS.

Top Shelf, that one ;)

Tue, 06/09/2015 - 15:17 | 6179792 lunaticfringe
lunaticfringe's picture

Very funny. +1000

Wed, 06/10/2015 - 01:22 | 6181495 El Crusty
El Crusty's picture

Thats an insult to horses.

Everyone knows Kerry looks like frankenstein's monster with some makeup on it.

Wait, thats an insult to frankenstein's monster...shit, i'll try again tomorrow.

Tue, 06/09/2015 - 13:34 | 6179312 OLD YELLER
OLD YELLER's picture

A massive plane? Why dosen't Ohbummer just Drone him? Oh, right. Most intellectualy challenged think he's on our side.

Tue, 06/09/2015 - 15:05 | 6179741 PhysicalRealm
PhysicalRealm's picture

 

To nope-1004:

That article you cite at whatdoesitmean is by Sorcha Faal aka David Booth, who has been a known disinfo operative for many years.
http://www.abovetopsecret.com/forum/thread304918/pg1
http://www.bibliotecapleyades.net/esp_autor_booth.htm

 

 

Tue, 06/09/2015 - 15:45 | 6179801 nope-1004
nope-1004's picture

Agreed, let's get someone reputable like Brian Williams.

I do know one thing:  Where there is smoke, there is fire.  And the last time a plane like that was sent for a US diplomat was....... when?

 

Tue, 06/09/2015 - 12:13 | 6178903 lasvegaspersona
lasvegaspersona's picture

A femur fracture is associated with up to 50% mortality!

It is not a trivial injury. I'm sure Kerry got good care but infection, clots and just the debility of being out of commission or even bedridden takes a toll. In the elderly, already frail, it is often the last event before other systems begin shutting down.

Kerry appears to be in good health so it might be a fully recoverable injury...but that is not a certainty.

Advice: keep your quads strong. Most of my patients who suffer falls do so due to weakened quads. They simply cannot react in time to avoid falling. Falls kill more of my patients (slowly) than the diseases I treat.

If you really want to 'prep'...prep your quads with quad sets. Get ankle weights and do lifts from the sitting position. It won't make you buff but it will prolong your life. Do not be a burden. Lose some weight and get strong.

Tue, 06/09/2015 - 12:20 | 6178953 pods
pods's picture

Shit, they didn't do all that for Eight Belles, they shot the fucker right on the racetrack.

pods

Tue, 06/09/2015 - 12:47 | 6179088 HenryHall
HenryHall's picture

No evidence, or reason to believe, that John Kerry is still alive.

Tue, 06/09/2015 - 12:48 | 6179094 Government need...
Government needs you to pay taxes's picture

Let me know when they need my feet to tramp the dirt down.

Tue, 06/09/2015 - 12:57 | 6179139 Winston Churchill
Winston Churchill's picture

there is already a long queue for that urinal.

Tue, 06/09/2015 - 12:45 | 6179078 Temporalist
Temporalist's picture

Ron Paul rides a bike you don't see him breaking his pussy bone.

Tue, 06/09/2015 - 14:21 | 6179516 Bastiat
Bastiat's picture

Hey doc,  Could you clarifiy "up to 50% mortality?"  -- Why "up to?"

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